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Southern Illinois | I often wonder the same thing with land purchases. But there are pros and cons to both.
Land Purchase +: At the end of the day, it's yours and no one take it away from you (except the creditor if you don't pay). Plus it's good retirement once you're done farming; land is always producing income. Even if you overpay, it's still yours.
Land Purchase -: Land is a long-term investment. Believe it or not, there is very little land paid for in cash by farmers, investors are a different story. Buying land with very little cash up front is not smart IMO unless you can get it for much less than market value. Unlike machinery and equipment which will be paid off in less than 10 years, land is a 20+ year commitment. In the scenario given by the OP, the purchaser will have over $15,000/ac invested in that land once paid off and that's at 3.50% interest for the life of the loan which is not likely.
Cash Rent +: Cash renting seems to be a way to make quick money if done right. When corn was $7+ the high cash rent made people lots of money, who knows how that'll play out if the long term price of corn is $3.50 - $4. Another positive thing to look at with a high cash rent contract is that it can generally be terminated within 1-3 years, it's not a long-term investment like a land payment. In a way, it's somewhat like a machinery purchase; both can be fixed within 5 years. The land could be let go and the machinery could be paid for.
Cash Rent-: Just as commodity markets can move in your favor, they can move just as easily against you. Paying high cash rent can simply be not profitable which is the most obvious con. I think most can live with having high land costs when it's at least land that you own (high land payment); just as long as your can afford the payment as mentioned above.
Just my thoughts, take it FWIW. | |
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What is the key?
